the decay of tele and the acquisition by Claro, TIM and Vivo – Telecommunications – Tecnoblog


Oi Store (Image: Publicity)

Maybe you don’t know, but Oi Móvel was sold to Claro, TIM and Vivo in December 2020. The value of the deal reaches R$ 16.5 billion, but the purchase still needs to be approved by regulatory bodies. Understand how Oi Móvel is heading towards its end and what still has to happen.

But how did Oi get to this hole?

Oi’s decision to sell its mobile telephony division did not happen for nothing: the operator has been facing since 2016 one of the most complex judicial reorganization processes in Brazil, with debts that reached R$ 65 billion due to business with companies that had health care financial commitment.

With no cash in hand to keep up with the investments of other telecoms, Oi’s situation has become unsustainable in recent years.

The lag in the provision of fixed services

One of Oi’s main businesses is the fixed telephone service. It is the largest operator in this category, since the tele operated throughout Brazil, with the exception of the state of São Paulo.

With the change in consumer habits towards the use of data instead of voice, fixed telephony has fallen into disuse. The customer base drops month after month as most people no longer see the value in having a home phone line.

With copper, Oi had bad broadband

Oi also sold the broadband service with xDSL technology, Velox. But it is worth noting that much of the fixed infrastructure was inherited from state telephones, so we are talking about a data service provided on networks that were originally designed for voice only.

It didn’t take long and Oi’s broadband service was outdated. With copper networks originally designed for voice service, the operator has always encountered technical limitations to offer high speed to everyone, as switches used to be far away from customers’ homes.

A bunch of telecommunications cables hanging from a power pole
Poles with telecommunications cables (Image: Lucas Braga/Tecnoblog)

In large cities, other operators such as Claro, Vivo and TIM competed with Oi and had more modern networks. These teles were able to offer broadband with better speeds at prices equal to or less than Oi, which caused a large migration of customers.

But in many places, especially in small and medium-sized cities in the interior, Oi used to be the only fixed connectivity option, and this ended up guaranteeing revenue for tele. What many didn’t count on was the great advance of small regional providers, who started to offer better, more stable services, with more modern technologies and lower prices. The situation became so unsustainable that Velox plans stopped being marketed in April 2020.

It is worth remembering that Oi had a fiber optic internet pilot in mid-2012, but the service did not expand to more than half a dozen neighborhoods in Belo Horizonte and Rio de Janeiro. The operator opted to invest in a new satellite contract for the provision of pay TV, a service that was on the rise at that time and is now declining with great strides.

Oi’s mobile network is bad and uncompetitive

At the same time that Oi was having difficulties with the fixed service, mobile telephony was not doing well. A large part of the customer base used the service in the prepaid mode, which does not usually generate much revenue.

Compared to Claro, TIM and Vivo, Oi has always been in fourth place in mobile lines. It peaked in 2014, and since then there has been a huge decline in the subscriber base.

Cell phone tower.  Photo: Lucas Braga/Technoblog
Cell phone tower (Image: Lucas Braga/Tecnoblog)

The problem is that Oi has technical difficulties in the mobile segment: it has a presence with the service in 3,611 Brazilian municipalities, but only 1,042 locations are served with 4G and 1,670 have a 3G network. The rest of the sites are practically disconnected, since it is unfeasible to surf in 2G in the middle of 2021.

For comparison purposes: Claro, TIM and Vivo have 3G and/or 4G in more cities than Oi’s entire mobile network.

In addition to the lack of coverage, Oi also has a deficiency in spectrum compared to its competitors. The operator has almost no licenses in frequencies below 1 GHz, which guarantee greater signal penetration and allow better use of the cell phone indoors.

Thus, Claro, TIM and Vivo are able to stand out with the quality of the service provided. These factors end up discouraging the migration of customers from other operators to Oi Móvel.

The switch to fiber optics

It was already possible to understand that Oi was not doing well either in the fixed or mobile segment. Thus, the operator understood that it was necessary to focus on a single service to get the better of it.

Even with all the setbacks, Oi has a great asset: a large fiber optic transport network (backhaul), which interconnected more than 2,000 Brazilian municipalities and is more than 400,000 km long. No other tele has such a grandiose network and similar capillarity.

Oi technicians expanding fiber optic network in Belo Horizonte/MG
Oi technicians expanding fiber optic network (Image: Lucas Braga / Tecnoblog)

Therefore, Oi chose to take advantage of this transport infrastructure to launch a new fiber optic broadband service. And it worked: Oi Fibra brought positive results for the company and already has more customers than the old service provided by copper.

Another strategic change found by the operator was to derive all fiber optic assets for a new company, called V.tal. Structural separation allows the infrastructure to become a neutral network so that it can be rented by other companies – this allows to increase the network’s occupancy rate (how many customers are connected), and consequently maximizes broadband revenue.

Like Oi Móvel, Oi’s fiber company was also auctioned. A fund from BTG Pactual bank paid R$12.9 billion and will be a partner in the neutral operator V.tal. The deal enables an even greater expansion of the FTTH network (fiber to the subscriber’s home), with the expectation of reaching 32 million homes by the end of 2025.

Of course, TIM and Vivo bought Oi Móvel

With the focus defined on optical fiber, the remaining part was to sell Oi’s cellular telephony operation. The intention to get rid of Oi Móvel was made official in a strategic plan released in June 2021; tele also announced the sale of pay TV assets, mobile phone towers and data centers.

At first, Oi established a minimum price of R$ 15 billion for the sale of the mobile telephony unit. In July 2020, the operator started to receive proposals, and even signed an agreement with Highline, a company that intended to transform Oi Móvel into a neutral cell phone network.

In the end, Highline gave up on the deal and did not even participate in the auction held by Justiça Empresarial on December 14, 2020. The trio composed of Claro, TIM and Vivo was the only one that was present at the event and won Oi Móvel for R$16.5 billion.

Although the auction took place, the deal has not yet been completed and is awaiting approval from regulatory and antitrust bodies.

Where do Oi Móvel customers go?

Claro, TIM and Vivo’s proposal for the purchase of Oi Móvel will slice up customers: the operator with the smallest market share in each area code will stay with the respective Oi Móvel subscribers in that region.

If this arrangement is maintained, TIM should absorb the largest number of customers, with 14.5 million lines in 29 different area codes, followed by Claro (11.7 million in 27 area codes) and Vivo (10.5 million in 11 area codes). ).

iPhone and cell phone chips
Oi customers should be divided by area code (Image: Lucas Braga / Tecnoblog)

In São Paulo (DDD 11) and Rio de Janeiro (DDD 21), for example, TIM is the operator with the smallest market share in comparison and should be responsible for Oi’s customers. Check here the list with the other area codes.

Vivo and TIM will also receive spectrum licenses from Oi. Claro was left out of this part of the deal, as it already runs into the maximum limit established by Anatel when it bought Nextel for R$ 3.47 billion in March 2019.

While the sale does not take place, Oi Móvel continues to sell plans normally – except for the combos with fixed services, which had sales interrupted in January 2021. By the way, Oi’s packages are beyond competitive: the tele sells a prepaid 25 GB for R$25 per month and an unlimited postpaid mobile internet fee of R$99 per month. None of the buying operators have such aggressive offers.

Business needs to be approved by Cade and Anatel

Although the auction has already been carried out by the Business Justice, the Oi Móvel business still needs to be approved by Anatel and the Administrative Council for Economic Defense (Cade).

Anatel’s technical team recommends approval

Anatel’s technical team has already given a technical opinion recommending the approval of the deal, and concluded that the incorporation of Oi Móvel by the trio would not have a significant impact on market concentration.

The study also pointed out that the Oi Móvel takes the initiative to profitably challenge its rivals, but it still fails to increase its customer base prominently.

Anatel headquarters facade
Anatel’s Board of Directors needs to approve the purchase of Oi Móvel (Photo: Sinclair Maia/Anatel Disclosure)

Even so, the technicians recommend that the agency demand compensation for the approval of the deal, including a reference offer for national roaming to serve small operators and another reference offer for the performance of virtual operators, with fair, reasonable and non-discriminatory conditions of hiring.

Process at Cade may give Claro, Oi, TIM and Vivo a headache

A process on the merger is dragging on at Cade, which has already received collaborations from companies to give an opinion on the sale of Oi Móvel to Claro, TIM and Vivo.

Telcomp, an association that represents competitive telecommunications providers, took a stand against the deal. In a document sent to Cade, the entity refutes the statement that Oi does not provide competitive pressure, and that Claro, TIM and Vivo omit in the process the growth of Oi Móvel’s market share between 2020 and the second quarter of 2021.

The entity also points out that Oi itself recognizes that it competes in the mobile telephony market with Claro, TIM and Vivo in its communications to investors, and highlights that Grupo Oi had significant growth in the postpaid segment in recent years.

More companies and entities also took a stand against the deal, such as the Minas Gerais operator Algar, the Neo association and the Brazilian Consumer Defense Institute (Idec). The great concern is that the reduction of four major operators to three will increase the possibility of coordinated action (cartel).

Another object of concern is the possibility of the deal harming smaller companies that depend on large operators. According to the Telcomp document, Grupo Oi is the only one that accepts to negotiate roaming contracts with virtual operators.

Due to the complexity of the business, Cade has a period of up to 240 days to make a decision, which ends in mid-January 2022. Anyway, Anatel also needs to give its consent, which should only happen after the auction of the 5G in November 2021.

It is worth remembering that Cade said, in 2019, that the reduction from four to three operators would be something of concern. When evaluating the purchase of Nextel by Claro, the antitrust also warned of the possibility of an increase in coordinated action.

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